Morale boosted by rise in oil prices

ARA Consumer Confidence Index — May 2018

On account of its interest for monitoring the economic situation in Kuwait, “ARA Research & Consultancy” issues a monthly Consumer Confidence Index, in collaboration with the “Arab Times” newspaper and under the sponsorship of the “Lexus” trademark. The Consumer Confidence Index is considered as the only indicator that measures the Consumers’ psychological factors, based on people’s opinions and their prospects about the current economic situation and its future as well as their expectations regarding their financial conditions, and how that reflects on their purchasing power.

The Consumer Confidence Index is issued the first Sunday of each month, and is based on quantitative research on a sample of 500 people, distributed among Kuwaitis and Arab residents in different Governorates.

The study was conducted by telephone through a random call selection, taking into account that the distribution of the sample should be representative of the population in Kuwait.

The general Consumer Confidence Index is based on six indices which the researchers at ARA use to measure the level of the consumer satisfaction and optimism. These are:

■ Current Economic Situation Index

■ Expected Economic Situation Index ■ Current Personal Income Index ■ Expected Personal Income Index

■ Current Employment Opportunities Index

■ Purchase of Durables Index

The indices’ results in a month basis measure the psychological state of consumers in Kuwait, which equal 100 points. This result (100 points) draws the line between optimism and pessimism among consumers. The more the index surpasses this point, the more the psychological state of consumers in Kuwait is considered to be inclined towards optimism. The more the index declines below this point, the more pessimistic the outlook.

Consumer confidence up 2 points in second month of financial year

ARA Research & Consultancy has released its May 2018 Consumer Confidence Index in collaboration with the Arab Times newspaper and under the sponsorship of Lexus.

The holy month of Ramadan started mid-May this year which involved additional activities, outgoings and expenses. These, on the one hand, create an atmosphere of rapport and friendliness and, on the other hand, propel consumer markets as well as some services.

Given that May is the second month of the 2018-2019 financial year, the financial and economic results reported during those two months can be relied upon to envisage the features of the general economic and social outlook, hence the direction of consumer confidence indicators for the current financial year.

The first feature of this phase is the rise in oil prices to the highest level since October 2014. The first month of the financial year registered an average of 66.9 dollars per Kuwaiti oil barrel, 33.8% over the expected price in the budget: 50 dollars.

Oil prices registered gains in May, compared with April, with the Kuwaiti oil barrel ranging between 68.8 and 75.15 dollars.

Based on these data of the two months, and the move towards increasing Kuwaiti oil production to 3.38 million barrels per day, and should the current oil prices remain stable, the current financial year’s budget can register a surplus of 7%, in contrast to all expectations about a budget deficit.

In addition to the increased oil prices and the better budget situation, the non-oil economic sectors registered higher contributions to national income which reached 1.6 billion Dinars.

Other sectors also boomed, mainly the real estate sector, where transactions reached their highest levels in years.

Amidst this positive climate, Fitch credit rating agency re-confirmed its previous AA rating for Kuwait, relying on indicators that the budget deficit could be overcome and some financial surplus could be achieved.

ARA General Consumer Confidence Index in May 2018 posted 108 points, up 2 points within a month and 9 points within a year.

Capital boosts economic situation

A set of positive and negative factors, at the economic and financial levels, influence the convictions and views of consumers about the current and future economic situations, most prominently the rise in oil prices and its impact on public finances. However, this issue raises a number of questions again, including one about the results expected from the next meeting of the oil-exporting countries within and outside OPEC. The meeting is expected - after the reduction in global reserves and containing the gap between supply and demand in oil markets — to take a decision to increase production by more than one billion barrels a day. This is despite the emergence of some concerns about the results of such decision at the level of oil prices, on the one hand, and regarding the non-abidance by the decision, on the other hand, given that some oil producing companies use roundabout ways and do not abide precisely by the set oil exportation quotas.

In addition to the legitimate questions around oil prices, some additional hardships emerged in the economic field, including:

1- After starting the implementation of the new systems and the modus operandi of the Stock Exchange, its three indices dropped by 4.4% for the first market index, 3.3% for the main market and 4% for the General Index.

2- A drop in the pace and size of awarding of contracts was registered in the first quarter of the year, to mark a lower level than 2017 general average.

3- A 3% drop in rental was announced by The Real Estate Union, a result in the declining growth of expatriates.

This is in addition to the impact of the geopolitical regional situation at the various security, economic and political levels.

Amidst this climate, the Current Economic Index registered 97 points, settling at the same ratio as April, and up 5 points within a year.

Meanwhile, the Future Economic Situation Index recorded 104 points, a loss of 1 point within a month and up 4 points compared with May 2017.

Notably, the Capital’s ratio on the Current Economic Situation Index went up to 129 points, a hike of 20 points within a month which is positively significant, given the political and financial position of the Capital and its economic role.

The citizens dropped 3 points on the Current Economic Situation Index but added 1 point on the Future Economic situation Index. Meanwhile, the Arab expatriates displayed confidence on the first index with 6 extra points while they showed concern regarding the future economic situation with a drop of 7 points compared with their previous ratio on the second index.

The figures of the research exhibited discrepancy in the level of consumer confidence in the economic situation. While the Capital gained 20 points and Ahmadi 19 points, Mubarak el-Kabier Governorate registered an 11-point fall on the Current Economic Situation Index, although it posted a 17-point increase on the Future Economic situation Index.

These figures and discrepancies regarding the economic situation reflects the impact of the current transitional stage, whether positively and/ or negatively, on the convictions and psyche of consumers.

Average citizen’s salary is 1405

ARA Current Personal Income Index posted 108 points, up 8 points compared with the previous month and 20 points compared with May 2017.

The increase in this index by 20 points within a year highlights how far economic and financial improvement in Kuwait during this period positively influenced the stability and progress of personal incomes which in turn had a positive impact on the convictions and psyche of consumers and their satisfaction with their monthly incomes.

Amidst this climate, the citizens posted 118 points on the Current Personal Income Index, up 2 points while the Arab expatriates reported 93 points, a jump of 20 points.

At the level of governorates, Farwaniyah registered 129 points, shooting up 41 points within a month, followed by Ahmadi with 118 points, while the Capital reported 103 points, a loss of 9 points.

Meanwhile, young people aged 18-35 recorded 108 points on this index, up 8 points compared with their previous ratio.

ARA Expected Personal Income Index posted 106 points, up 1 point compared with April and only 3 points compared with May 2017. This ratio is considered to be similar to most ratios registered for the Expected Personal Income Index over the past months, a fact that indicates that relative stability has characterised this index since May 2017.

Despite this stability, a minority expressed dissatisfaction with the expected personal incomes, while the other ratios ranged between stability and relative improvement in consumer confidence.

The citizens registered 105 points on this index, down 2 points and the Arab residents reported 106 points, up 6 points within a month.

Notably, the earners of a monthly income of no more than 450 Dinars added 2 points to their previous ratio on the Expected Personal Income Index, while their ratio plummeted among the better-off category of those earning between 2,250 and 2,849 Dinars by 21 points within a month.

ARA Current Employment Opportunities Index for May 2018 recorded 149 points, a 12-point drop compared with its previous ratio.

Despite this fall in the ratio, it is 19 points ahead on a yearly basis.

The shrinkage of employment opportunities demanded by the market is due to a number of reasons, most prominently including:

I. The fall in the growth of awarding development projects during the first quarter of 2018, compared with the first quarter of the year 2017, and the impact of this on the contracting companies and therefore the labour market

II. Postponing or slow implementation of partnership between the public and private sectors, particularly in the fields of implementing approved projects

III. Not attracting foreign investments in the productive economic

sectors, and some of these investments being confined to employment in financial markets

IV. Delay and caution that have characterized some work programmes in several private companies in various fields

Amidst this climate, the oil company announced its employment programme for the coming years, including the companies affiliated to it and companies it has contracts with. This is to secure the employment of around 113,000 employees within five years, with priority being given to increasing the percentage of national labour in this sector.

On a similar note, it is also important to adopt and implement meaningful programmes to reduce the size of non-necessary and nonproductive national labour in some state sectors and ministries and encourage and redirect them to various economic and service activities in the private sector.

This would reduce financial burdens on the treasury and diversify income sources as well as opening up new opportunities for the national labour, particularly the youth.

In this atmosphere, the citizens registered 138 points on the Current Employment Opportunities Index, a 17-point slump within a month.

Notably, this ratio dropped in all governorates, including Farwaniyah by 26 points, the Capital by 18 points, and Hawalli by 14 points, within a month.

This drop across all research components in the labour market index reflects a decline in the growth of various economic sectors.

Consumer culture prevails

The past years have seen the strengthening of a culture of extravagance in consumption and spending in several oil-producing countries.

After the dip in the oil prices in the fourth quarter of 2014, let alone the geopolitical, security and political situation in the region, some calls emerged for rationalising consumption spending in order to reduce unnecessary expenses.

However, some reports indicate that unnecessary expenses are still entrenched in the mentality of the Kuwaiti consumer, citing the size of jewellery purchases, considered to be one of the highest in the world, as evidence of the consumption habits.

The following facts also confirm this perception:

Domestic labour in Kuwait represent 25% of the total workforce

The percentage of domestic labour, the highest in the world, is one worker for each two citizens

The salaries of domestic workers total 700 million Dinars annually

The annual cost of renewing or replacing work permits for domestic workers is 15 million Dinars.

There are several indications of excessive spending in several other areas.

The Holy Month of Ramadan sees a rise in spending, as ARA consumer confidence study for May 2018 found Ahmadi Governorates registering an extra 71 points on the Purchase of Durable Goods Index; Mubarak elKabier 26 points; and the Capital 11 points.

The increased consumption and consumer market activity during May was boosted by additional factors, including the rise in the exchange rate of the dinar against the US dollar and the fall in the monetary inflation in March to its lowest levels in 9 months, 1%.

These factors and others boosted the purchasing power which was manifested positively in the level of market activity.